The Pachyy Editorial Team comprises a diverse and experienced team of writers, researchers and subject matter experts whose aim is to provide you with useful insights, guidance and commentary on all matters related to your personal finances.
Hey there! I wanted to let you know about the current economic situation for young people in America. It’s tough out there for our generation, with many of us facing financial instability. The wages we earn often don’t cover our necessary expenses, and one of the main causes of financial stress is our student loans. It can be really tempting to turn to payday loans to make it to our next paycheck, but it’s important to understand that they won’t actually solve our debt problems. Instead, they usually end up trapping us in a cycle of debt.
I found a report from the Federal Reserve that reveals some eye-opening facts. As of 2021, the average debt for young Americans aged 18 to 29 is $14,827, which includes student loans, credit card debt, and car loans. This is all contributing to the broader debt crisis that we’re facing.
The Situation: Who Is Struggling with Debt?
Hey there! We want to shed light on a common concern among our Generation Z friends. Even though many of them aren’t yet old enough to attend college, they still face financial stress when it comes to managing their day-to-day expenses. It’s tough for them to afford basic necessities like food and transportation, and the thought of future higher education costs causes them anxiety.
According to a study conducted by Northwestern Mutual, we learned that Millennials carry an average debt of $27,900. On the other hand, our fellow Generation Z members have an average debt of $14,700. It’s essential to recognize and address the financial challenges our younger generation is facing.
Understanding the Reasons Behind the Financial Challenges Young Americans Face
One of the major factors contributing to the financial difficulties young individuals experience is the crisis surrounding student loan debt. Currently, college graduates in America who have student debt are finding themselves with negative net wealth, a situation that has not occurred before. It is quite startling to discover that Millennials possess only half the net wealth compared to Baby Boomers when they were at the same age.
- The number of households burdened with student loan debt has doubled between 1998 and 2016.
- A considerable one-third of adults aged between 25 to 34 carry a student loan.
- Among Generation Z, student loans are the primary source of debt.
- As a collective, Millennials now earn 43 percent less than what individuals from Generation X (born between 1965 and 1980) were making in 1995.
- Disturbingly, 61 percent of Millennials are unable to cover their essential expenses for three consecutive months.
The visual representation depicts the increase in student debt between 1989 and 2016. Illustrator: Eva Conway
Despite having jobs, young people are still compelled to take out loans to meet their basic needs. It is disheartening to note that today, young workers holding a college degree and student debt earn a similar income to workers without a college degree back in 1989.
Helping Students Manage Loans
Did you know that over nine million student loan borrowers are currently in default?
It’s important to address the growing concern around student debt. As of February 2020, the outstanding student debt in the USA has soared to an astonishing $1.6 trillion. This number has significantly increased from approximately $830 billion in 2010. These figures demonstrate that American student loan debt now surpasses both credit card debt and auto loans. It’s crucial to address these statistics, especially considering the impact of COVID-19 on the US economy.
Can Students Use Payday Lending Services?
Hey there, as a student, you have many financial options available to help you during your studies. You might want to consider student loans, grants, bursaries, or even credit cards. In case you find yourself in a financial emergency, like car repairs or hospital bills, you could apply for a payday loan if you meet the requirements.
However, here at Pachyy, we want to guide and support you in making the best decisions for your finances. We strongly advise against payday lending for students because it can be quite pricey. Instead, we urge you to explore safer alternatives. Before considering a student payday loan, take the time to think carefully about it. Payday loans should always be a last resort. Make sure you’ve exhausted all other options for obtaining the funds you need before reaching out to us.
Helpful Reminder: Payday Lenders May Target Young People
It’s important to be aware that some payday lenders specifically focus on young individuals who may be facing a debt crisis. They tend to utilize technology as young people have a high usage rate.
Many young individuals rely on apps for managing their finances, with 48 percent of those aged 18 to 24 regularly using mobile banking apps. Additionally, 35 percent of those aged 25 to 34 manage their finances through their phone. Due to the popularity of apps and websites among young Americans, there has been an emergence of new app-based short-term loan services aiming to cater to this market.
It’s worth noting that certain loan apps grab the attention of young individuals by promising instant payment upon leaving work. However, it’s important to stay cautious as regulators have raised concerns regarding the legality of some of these apps acting as payday lenders.
How Does It Affect Young People?
Today, young people face greater financial pressures than previous generations. It’s important to note that resorting to payday loans is not a solution to their debt problems. Instead, it can lead them into a harmful cycle of debt.
If you rely on payday loans to cover your daily expenses but struggle to repay them on time, your credit rating could be negatively impacted. A poor credit score reduces your chances of being approved for future loan products.
Is it Recommended to Use a Payday Loan to Repay Student Debt?
We strongly advise against using a payday loan to repay your student debt. This approach can create a cycle of debt due to the high fees associated with payday loans, which can severely impact your financial situation. In case you miss loan payments on time, the interest on your loan will keep accumulating. As a result, you may find yourself burdened with a significant amount of unmanageable debt. Furthermore, failure to repay this debt can negatively affect your credit record and lead to various consequences, such as being unable to apply for credit from traditional financial institutions. Additionally, your lender may resort to measures like wage garnishment, lawsuits, and debt collection.
As advocates for responsible borrowing, we do not recommend payday lending to students due to its high cost. If you are a student in need of some extra cash, our guide on “Are Payday Loans Suitable For Students?” can assist you in determining if a payday loan is an appropriate option for your circumstances.